COMMISSIONER OF INCOME TAX Vs. MALTAX MALSERS LTD.

JUDGEMENT

(1.) THE assessee company is manufacturing malt from barley. In addition to this, the company has income from dealings in Indian made foreign liquor on wholesale basis.

(2.) THE assessee company filed its return of income on 29th June, 1984 declaring net income of Rs. 11,85,890. The accounting period of the assessee company for asst. yr. 1983 -84 ended on 30th Nov., 1982. The assessee company moved an application for change of its accounting period from 30th November to 30th June. While allowing the said application on 30th Dec, 1982, the AO had imposed a condition that depreciation allowance for asst. yr. 1984 -85 will be restricted to 7/12 of the admissible amount of depreciation. The said order was never challenged by the assessee. During the course of assessment proceedings, the AO allowed depreciation to the extent of 7/12 of the admissible amount of depreciation. The assessee preferred appeal to Commissioner of Income Tax (Appeals), Ludhiana [hereinafter referred to as the CIT(A)], who held that in view of the Rule 5(1) of the IT Rules, the assessee was entitled to full depreciation instead of 7/12. When the matter came before the Income Tax Appellate Tribunal, Chandigarh (hereinafter referred to as 'the Tribunal'), it was observed that the assessee in the present case did not file any appeal against the conditions imposed by the AO while permitting change in the "previous year" because no such appeal lies under the IT Act. The Tribunal while relying upon the judgment of the Hon'ble Gujarat High Court in the case of VXL India Ltd. v. : [1987]168ITR805(Guj) and J.K. Synthetics Ltd. v. : [1976]105ITR864(All) held that there was no estoppel against the law and if the condition imposed by the ITO while permitting a change in the "previous year" was invalid and even if it is not challenged by the AO (sic -assessee), the full depreciation is allowable to the assessee at the prescribed rate irrespective of the user of the assets. On a petition filed by the Revenue, in compliance of the directions of this Court, passed in ITC No. 185 of 1993 dt. 10th April, 1996 reported as CIT v. - Ed. under Section 256(2) of the IT Act, 1961, the Tribunal referred the following question of law to this Court for its opinion:

(3.) ON the other hand, Mr. Akshay Bhan, learned Counsel for the assessee respondent has vehemently argued that the AO cannot impose condition arbitrarily and contrary to the provisions of the IT Act and the conditions which the ITO can impose while permitting a change in the "previous year" must be valid, legal and reasonable. He further argued that there is no estoppel against the law and if the condition imposed by the ITO while permitting a change in the previous year was invalid, the same can be ignored by the assessing authority while granting the benefit of full depreciation under Section 32 r/w Rule 5(1) of the IT Rules, which permitted full depreciation to the assessee. In support of his arguments, the learned Counsel has placed reliance upon the judgment of Hon'ble Gujarat High Court in the case of VXL India v. CIT (supra) and J.K. Synthetics Ltd. v. ITO (supra) for the proposition. The conditions which the Act imposes, while permitting a change in the "previous year" must be valid, legal and reasonable and the Revenue authority cannot impose conditions which are contrary to the provisions of the IT Act.